Bombardier Inc to get US$1 billion from Quebec government to rescue troubled CSeries

TORONTO • Bombardier Inc. admitted that it can no longer go it alone Thursday, turning to the Quebec government for a US$1-billion bailout of the troubled CSeries program as it announced a massive writedown and a US$4.9-billion third-quarter loss.

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In exchange for its investment, the provincial government will receive a 49.5 per cent stake in a new limited partnership that will take control of the assets, liabilities and obligations of the CSeries program just as the smaller CS100 version of the jetliner nears certification.

Following an in-depth review of the aircraft, which has been plagued with delays, cost overruns and a year-long sales drought, Bombardier took a US$3.2-billion impairment charge in the third quarter.

Bombardier also said it would cancel its Learjet 85 program, which was mothballed in January, taking another US$1.2-billion writedown and cancelling the 64 orders that had been placed for the new business jet.

CEO Alain Bellemare attempted to put a positive spin on the numbers, saying the government lifeline should reassure investors and customers that the company isn’t going anywhere.

“I think having a partner inject liquidity … is a big deal and will be well-received by our customers,” Bellemare said on a conference call with analysts. “It’s all about giving confidence that the CSeries will be there and Bombardier will be there to support these programs that will be in service for many, many years.”

Writing down $3.2 billion and creating some kind of new company with government backing is best described as a last resort

But Richard Aboulafia, a long-time critic of the CSeries, said the government stake and the massive writedown imply something much worse — “the beginning of the end” of the company’s bet on narrow-body aircraft.

“Writing down $3.2 billion and creating some kind of new company with government backing is best described as a last resort,” said Aboulafia, vice-president of analysis at aviation research firm Teal Group Corp.

Bombardier shares fell 17.4 per cent Thursday to close at $1.33, more than wiping out Wednesday’s 11 per cent gain that followed reports of a government investment.

One of the persistent concerns about the CSeries is the lack of sales for the aircraft, which has not recorded a new firm order since September 2014 or even a letter of intent since March.

However, Bellemare said Thursday that the sales team is seeing “great momentum.”

“I feel better today than I did three months ago. I think we’re getting good traction,” Bellemare told reporters.

“I don’t know exactly when we’ll be able to announce something, I just know that we have way more activity today than we have had in a long time at Bombardier.”

The company’s liquidity position has been another lingering concern, as it’s expected to burn through as much as US$2.2 billion in cash this year. The CSeries is entering a capital-intensive period as the final tests are completed and production ramps up, just as sales for the company’s high-margin business jets have been slowing down.

But chief financial officer John Di Bert said the liquidity concerns are overblown and Bombardier’s cash position of US$3.7 billion at the end of the third quarter “will be the low point for the foreseeable future.”

The CSeries will be profitable on a per-unit basis in less than five years and will generate positive cash flow by 2020-21, Di Bert added.

For the third quarter, Bombardier reported a 16 per cent decline in revenue to US$4.1 billion and a net loss of US$4.9 billion or US$2.20 per share. Stripping out the one-time writedowns, Bombardier’s adjusted profit was US$2 million, down from US$222 million a year ago.

As part of its attempt to bolster its balance sheet, Bombardier said in May that it would spin off a minority stake in its train-making division through an initial public offering that was originally planned for later this year. Bellemare said Thursday that he’s now pursuing a “dual track” that will either result in an IPO or a private placement.

Bellemare, who took over as CEO in February, has replaced almost the entire aerospace executive team and said he’s received the support he needs from the company’s board, which includes former CEO Pierre Beaudoin, his father Laurent Beaudoin, and his grandfather André Bombardier. The Bombardier-Beaudoin family is the company’s majority owner through its dual-class share structure, which has been criticized by minority investors.

“It was important for me to know that I would have the leeway and the flexibility to make the tough decisions to do what is right for the business for the long run,” Bellemare told reporters.

“So far what I’ve seen is people are very supportive and people really want to turn this situation around at Bombardier.”

Bellemare has proved that he is not afraid to criticize the company’s former management, saying Thursday that “the organization was overwhelmed” by the sheer amount of work it had taken on, including the now-cancelled Learjet 85, a new generation of Global business jets and the CSeries.

“How did we find ourselves in that situation?” he asked. “You find yourself in that situation when you have too many initiatives or projects ongoing in parallel.”

Active Investor was produced by Postmedia's advertising department in collaboration with iShares by BlackRock to promote awareness of this topic for commercial purposes. Postmedia's editorial departments had no involvement in the creation of this content.

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